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Fifth Third buys Old Kent
November 20, 2000: 2:55 p.m. ET

Midwest banks unite in $4.9B stock swap, Fifth Third's biggest deal ever
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NEW YORK (CNNfn) - Fifth Third Bancorp. agreed Monday to acquire Old Kent Financial Corp. in a nearly $5 billion stock swap, the biggest acquisition in Fifth Third's 142-year history.

The transaction will create the fifth-largest bank in Chicago and expand its presence in Chicago and Michigan. The combined company will have $69.1 billion in assets, $43.8 billion in deposits, and more than 980 banking locations.

Cincinnati-based Fifth Third (FITB: Research, Estimates) is known for acquiring much smaller targets and the Old Kent purchase is more than double the $2.2 billion price tag it paid in October 1999 for CNB Bancshares.

graphicFifth Third will exchange 0.74 share of its common stock for each Old Kent share. The $4.9 billion purchase, based on Fifth Third's $48.06 closing price Friday, values Grand Rapids, Mich.-based Old Kent (OK: Research, Estimates) shares at $35.56 each, a 42 percent premium over their Friday closing price.

Fifth Third will incur about $235 million in merger-related charges after tax. Fifth Third and Old Kent shareholders still must approve the transaction, which is expected to close in the second quarter 2001.

The 41-year-old Old Kent, with $22.5 billion in assets, operates over 300 banking offices in Michigan, Illinois and Indiana. By comparison, Fifth Third has $44 billion in assets and operates 14 affiliates with 640 banking centers.

The transaction will boost Fifth Third's 2001 earnings per share by 11 percent. The combined firm, which will operate under the name Fifth Third Bancorp, will save about 20 percent of Old Kent's total operating expenses. Fifth Third will phase in 25 percent of the savings in 2001, 75 percent in 2001 and 100 percent in 2003, the firms said.

News of the deal caused Old Kent's shares to rocket, climbing $8.25, or 33 percent to $33.25, while Fifth Third shares fell $2.06 to $46 in afternoon trading.

A Midwestern powerhouse

With the purchase, Fifth Third will rank as the 15th-largest U.S. bank, with nearly $70 billion in assets, analysts said.

"This has doubled the size of Fifth Third," said analyst Gary Townsend, of Friedman Billings Ramsey & Co. "Typically the mergers they've done have been half this size."

Before the purchase, Old Kent was trading nearly 40 percent below its 52-week high of $40.23. This year, in its annual review process, Old Kent decided on Fifth Third because it was more similar in culture, said Old Kent Chairman David Wagner on a conference call.

graphicCompanies often look to a merger to boost falling stock price's, said Friedman's Townsend. So far, it has worked as Old Kent shares gained nearly 33 percent Monday.

"This has taken them up to their 52-week high," Townsend said.

The bank will take a break from making any purchases while it is transitioning in Old Kent people and systems, executives said on the conference call.

"This is 20 percent of our market cap and we never do deals for over 10 percent," said Neal Arnold, Fifth Third's Chief Financial officer, on the call.

The purchase creates a Midwestern powerhouse, vaulting Fifth Third into fifth place in the Chicago market, behind rivals Bank One Corp. (ONE: Research, Estimates) and ABN Amro (ABN: Research, Estimates), with a 3.6 percent share and $5.9 billion in deposits. In Illinois, which is the fourth-largest deposit market, with $224 billion, Fifth Third will rank fifth in the state with 3.1 percent share and $6.7 billion in deposits, according to data from SNL Branch Migration Datasource.

Fifth Third will be third in Michigan, with a 9.4 percent market share and $10.6 billion in deposits. Michigan is the 10th-largest U.S. deposit market, with $126 billion, according to SNL.

The merged bank will leap into second place, based on deposits, in Ohio, Kentucky, Indiana, Michigan and Illinois, where it will have primary locations.

"This is going to be one of the really great mergers and I'm going to be part of it," Old Kent Chairman David Wagner.

In the Midwest, Fifth Third will rank first in traditional banking, ahead of State Street Corp. (STT: Research, Estimates) and Synovus Financial (SNV: Research, Estimates). In financial services, Fifth Third will place fourth behind Capital One and Charles Schwab (SCH: Research, Estimates).

"In one transaction, we have accomplished what would have taken several years to piecemeal together," Fifth Third executives said on the call.

Fifth Third also will create an affiliate, Fifth Third Bank, in Michigan, with three main banks in Grand Rapids, Detroit and Traverse City. Wagner will serve as chairman and CEO of the Michigan affiliate.

Salomon Smith Barney and law firm Cleary Gottlieb Steen & Hamilton advised Fifth Third, while Merrill Lynch and Wachtell Lipton Rosen & Katz advised Old Kent. graphic


Fifth Third Bancorp

Old Kent

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